This is probably the most critical question in building a new home:
Where is your money coming from?
Are you a cash buyer? While a little rarer, cash buyers are the only buyers who won’t need to research getting a loan. Most home buyers need to get a loan of some sort to pay for their new property and/or home.
For offsite building, it is beneficial to both parties (buyer and builder) for the customer to go with a construction loan for the build portion of the project. But first, you’ll have to decide if you have enough cash on hand to purchase your dream property.
Our preferred “offsite” lender, Willie Bren (info at bottom), can offer some much more flexible programs through Huntington Bank than many other banks offer. Call Willie to work through the details of your financial equation to getting your new home built. In the meantime, here is some general information:
Different types of loans have different requirements. Even if you qualify for a conventional loan that requires a small down payment on a used home, purchasing land and building are much riskier to a bank. They will want you to have more equity to qualify for these other types of loans.
If you do not own a property yet, you will need to have cash to put down on a property. Any bank will require a down payment, some as much as 40% down. Huntington offers:
Whether you own a property yet or not, you’ll want to look at your options with construction loans for the building costs of your new home. For a construction loan you will work with your builder on deciding the total cost of your new home (and any other components you may want tied in, such as offsite prep expenses.) You will close on the lot before building commences. The builder will request payouts dictated in your building contract (typically 3-4 during construction) from your bank, the bank will collect the invoices for all work finished to date and then the builder is paid by the bank. Construction loans are interest only loans, typically for the duration of one year.
Most banks are going to require a down payment of 10-20% of the Total Project Cost (see equation in “The 3 Main Components of Offsite Building”) to qualify you for a construction loan.
When it is time to build, your lot loan can be converted to a construction loan encompassing all costs to build your new home (if you would like).
And when your home is complete your construction loan will need to be converted into a conventional loan. Some banks, such as Huntington, can automatically roll your construction loan into a conventional mortgage so that you don’t have a second closing.
Explore more details about Offsite Building: